Updated on August 6, 2025
Before you sign a commercial lease in California, it’s important to understand the legal, financial, and operational risks involved. Whether you’re opening a storefront, launching an office, or expanding your business, a commercial lease agreement can shape your long-term success. This guide breaks down what to watch for before signing to help you avoid costly mistakes. Knowing what to expect before you sign a commercial lease can protect your investment and help prevent legal disputes down the line.
Right to Quiet Enjoyment When You Sign a Commercial Lease
Under California law, tenants have a right to the “quiet enjoyment” of leased premises. This right is outlined in California Civil Code § 1927, which ensures that tenants can use their rental space without unreasonable interference from the landlord. The courts have upheld this right in cases such as Erlach v. Sierra Asset Servicing, LLC (2014) 226 Cal. 4th 1281, 1299-1300, emphasizing that a landlord cannot disturb a tenant’s business operations. Similarly, under Civil Code § 3268 and cases like Kushner v. Home Service Co. (1929) 91 Cal. 692, 697, 267 landlords must act in good faith to honor this agreement. It’s crucial to ensure your lease explicitly addresses this right.
Implied Warranty of Habitability
For residential leases, California law provides an implied warranty of habitability, detailed in Civil Code § 1941.1, which requires landlords to maintain property conditions suitable for occupancy. Although this specific warranty does not directly apply to commercial leases, tenants should be cautious about leasing spaces that may have safety or health concerns, as business operations may still be affected if the property becomes unusable.
Landlord’s Right of Entry
Commercial leases often specify the circumstances under which a landlord may enter the property. According to California Civil Code § 1995.260,landlords generally have the right to enter for inspections, repairs, or showing the property to prospective tenants, but the lease should clearly define the amount of notice required and the frequency of such entries. The case of Kendall v. Ernest Pestana, Inc. (1985) 40 Cal. 3d 488, 492 highlights the importance of having well-defined entry terms to protect the tenant’s business operations from disruption.
Non-Compete Clauses
A non-compete clause can prevent a landlord from leasing nearby spaces to your competitors, which can be critical for certain businesses. However, the enforceability of these clauses often depends on how they are drafted. Carefully review any non-compete provisions to ensure they protect your interests.
Dispute Resolution Mechanism
When you sign a commercial lease, make sure you fully understand the dispute resolution clauses, including whether you’re bound to arbitration or allowed to pursue legal action in court. These methods are often less costly and time-consuming than court litigation, but it’s important to understand the implications of these choices. Check whether the lease allows you to pursue remedies in court if necessary, or if it limits you to private resolution methods.
Personal Guarantees When You Sign a Commercial Lease
Many landlords require business owners to sign personal guarantees, which make them personally liable for lease obligations if the business cannot pay rent. This can be a significant risk, so try to negotiate for limits on personal liability or alternative security measures.
Renovation and Alteration Terms
If you need to make improvements to the leased space, review the lease terms carefully. Some leases require landlord approval for alterations and may specify that you must restore the space to its original condition upon lease termination. Discuss these terms to avoid future disputes and unexpected costs.
Hours of Operation
Make sure the lease doesn’t impose restrictions on your business hours that could negatively affect your operations. If your business needs to operate during non-standard hours, clarify this upfront and include it in the lease agreement.
Use and Exclusivity Clauses
Commercial leases typically specify how the property can be used and may include exclusivity clauses to protect your business from competitors. For instance, an exclusivity clause might prevent the landlord from leasing space to a business similar to yours, which can be crucial for your business’s success.
Understanding how use and exclusivity clauses function before you sign a commercial lease can help protect your competitive position and business model.
For more information read: Think Twice Before Co-Signing or Guaranteeing a Lease for Your Kids